Sainsbury's sets out growth plans for 2020 as profits jump

Sainsbury's has vowed to generate nearly half of its total sales from beyond food by 2020, as it attempts to grab sales from Asda and the market leader Tesco by increasing its revenues from general merchandise, online and retailing services.

The UK's third-biggest grocer yesterday unveiled its plans for the next decade, which include opening shops overseas, as it delivered a 9 per cent rise in full-year pre-tax profits.

Sainsbury's said that 125,000 of its staff, including board members, would share a bonus pot of £60m, but this was down from a record £80m last year, with the grocer blaming "stretching" performance targets in 2010-11.

The 934-store supermarket said that only 25 per cent of its total sales currently came from outside of food, but by 2020 this would grow to 45 per cent. This will be driven by Sainsbury's growing its non-food, online offer and services, such as banking and travel exchange bureaux, as well as launching operations overseas and adding new digital channels and food services.

Justin King, the chief executive of Sainsbury's since 2004, described these new business opportunities as "twinkles in our eyes" and insisted they would not be derailed by this week's announcment that Darren Shapland, its group development director, will step down at the annual meeting on 13 July.

A key opportunity that Mr Shapland had been overseeing was the potential launch of Sainsbury's in China, where it already has a team on the ground. While Mr King refused to be drawn on China, he said more broadly: "All of our development plans remain unchanged by Darren's departure. We are not going to miss a beat."

Luke Jensen, who is currently Sainsbury's managing director for non-food products, is to take over the role of group development director.

For the year to 19 March, Sainsbury's grew its underlying pre-tax profits by 9 per cent to £665m compared with the year before, which was marginally ahead of City forecasts of £659m. In an industry characterised by wafer-thin margins, the grocer's crucial operating profit margin rose 14 basis points to 3.5 per cent, although this still lags Tesco's 6.14 per cent in the UK and Morrisons' 5.5 per cent.

Sainsbury's total sales rose by 7.1 per cent to £22.94bn. The grocer was boosted as its customer numbers rose to a record of 21 million transaction a week, up 1 million. Its underlying sales, excluding fuel and VAT, rose by 1.5 per cent over the year, although its growth rate slowed markedly between a strong third quarter and weak fourth one.

Sainsbury's said its non-food sales were growing at more than three times the rate of food and that it expected to devote 40 per cent of its new space, notably store extensions, to general merchandise products. The grocer – the UK's third biggest fashion retailer by sales volumes – has signed up Gok Wan, the fashion designer known for his How to Look Good Naked TV series. He will launch a clothing collection for Sainsbury's Tu brand this year.

Sainsbury's opened 1.5m sq ft of new space, covering new stores and extensions, in 2010-11 and expects to continue this momentum this year, including opening between one and two of its convenience stores each week. Mr King said the sales boost enjoyed by the retail sector from the balmy weather, Easter bank holidays and royal wedding in April did not change the fact that consumer confidence was at an "all-time low", with high petrol prices having the biggest impact on spending. Sainsbury's is to raise its full-year dividend by 6.3 per cent to 15.1p.

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